Israelis View a Battered Economy As Motivation for a Peace Effort

By JOEL BRINKLEY, Special to the New York Times

Published: February 13, 1989

TIBERIAS, Israel, Feb. 12—
It is lunchtime, and Yaacov Nachum, a restaurateur, is sitting alone at one of his cafe's sunlit street-side tables, sipping Turkish coffee and considering the banks of empty tables around him.

''In my 11 years here,'' he said with sad resignation, ''this is the worst time ever.''

As Israel's leaders talk of a growing economic crisis that has required them to impose a broad array of austerity programs, it is people like Mr. Nachum who are the first to feel the effect. At 12:30 one recent afternoon, every one of his cafe's tables along Tiberias's main commerical street was empty.

''I have friends who would come once or twice a week,'' Mr. Nachum said.''Now they've stopped coming at all. They don't have the money.'' Need for Discussions Seen

Amid a stagnating economy and rising inflation, Israel in the last two months has devalued the shekel, raised food prices, cut government subsidies, reduced increases in cost of living compensation and added surcharges for government health and education services. Finance Minister Shimon Peres says the economy is in such dreadful shape that Israelis must face up to ''the choice between unemployment - or worse.''

Mr. Nachum shook his head at that. ''Every few months they come up with some new plan, some new economic policy to tighten our belts.'' But in his view and that of a wide range of other average Israeli men and women interviewed in recent days, there is only one real answer to this country's long festering economic troubles.

''Sit and talk to the Arabs,'' Mr. Nachum said. ''That's the only solution.''

Economists offer a range of explanations for Israel's current economic problems, and not all of them relate to the nation's diplomatic troubles. Too many of the nation's businesses and industries are state run, economists note, meaning that often they are badly managed and inefficient.

In addition, many of the businesses and industry owned by the Histadrut, the national labor union, and those run by kibbutzim, are deep in debt. But since the Histadrut and the kibbutz movement are the Labor Party's base of support, economists say, they continue to receive government bailouts that discourage management from instituting the broad and often difficult operational reforms needed to make them efficient and profitable. Strife Hurting the Economy

But behind all that is the state of war that exists between Israel and most of its neighbors, and the Palestinian uprising now in its 15th month.

Regional tensions discourage exports and foreign investment that are essential for the salvation of any troubled economy. Many countries are reluctant to buy Israeli products or to sell their products here for fear of irritating the Arab nations.

And the uprising itself carries a terrible cost. Last week, the Government announced that it has spent $225 million fighting the uprising over the last year and expects to spend at least $125 million more in the year to come.

In addition, on Thursday the Bank of Israel released figures showing that Israel sold only $650 million worth of goods to Arabs in the West Bank and Gaza Strip last year, compared to $928 million in 1987, largely because most Palestinians observing the frequent commerical strikes have less money to spend while also making a concerted effort to boycott Israeli goods.

The nation's tourism industry, Israel's largest source of foreign revenue, has also been in a slide for a year, and with unanimity industry officials say the problem will not improve until the uprising ends. 'We Have to Find a Solution'

Many Israelis express a sense of frustration that the nation's leaders seem unwilling or unable to take initiatives to end the uprising or make peace with Israel's neighbors.

Yitzhak Shuraki, a technical clerk at the Caterpillar tractor plant in Kiryat Ata, said Israel should reconsider its policies now that Yasir Arafat, chairman of the Palestine Liberation Organization, has made broad political gains with the United States and other Western nations. ''Everybody else is talking to him, so we have to find a solution,'' he said. ''Our economic problems began years ago, and only a political solution can solve them.''

Prime Minister Yitzhak Shamir's office says he is preparing a peace initiative that he will take with him to Washington next month, and last month Foreign Minister Moshe Arens gave many Israelis hope when he told a committee of Parliament: ''Israel ought not cleave to all its former positions on the Middle East dispute. We must not erect a stone wall and refuse to make any changes.'' 'Folly and Nonsense'

But then early this month Mr. Shamir gave a fiery speech to a Likud party meeting that seemed to be a verbal stone wall.

''Folly and nonsense,'' he said to the idea that his Government would ever give up any part of the West Bank or Gaza Strip to the Palestinians.

''The time has come for the world to know that when they speak of the land of Israel, this land, which is called in various foreign languages and atlases Palestine,'' they should know that ''the land of Israel belongs to the people of Israel, and only to the people of Israel. There is not a power in the world that can give us orders, pressure us or force us to act otherwise.''